Cannabis penny stocks draw a lot of people for the percentage profits that can be made. When something is as cheap as penny stocks — say a $0.30 stock — and it makes gains up to $0.45, well that stock has just grown a whopping 50%.
Very few major stocks ever make those kinds of gains and that is a lovely feeling when you are an investor.
Of course, the volatility of penny stocks mean that you can easily drop 50% too. But if you do, it’s only $0.15 that you lose.
See the fun?
Risks in the Industry
Volatility is something you need to understand when investing in penny stocks of any kind. The nature of small businesses, as well as small prices, means shares are liable to jump up and down at any rate and nothing is sure. Businesses fail, people sell-off faster and buy-in faster as the monetary risk doesn’t seem great.
Illiquid is another term that comes to mind when talking about cannabis penny stocks. If something is illiquid, it means you may have a hard time actually making any money back from it. The marijuana industry is incredibly illiquid at present as you have to keep in mind that marijuana is not legal at the federal level in the US.
Still considered a schedule 1 narcotic, in America, marijuana companies effectively are trying to profit from something that is still deemed illegal. This means actually turning a profit from cannabis penny stocks is going to be difficult — for a while at least anyway.
But There Is Still Hope!
If you have done your research and understand that the market is still very unsure but are determined to invest in penny stocks, then there are some very important questions to ask. They are as follows:
- Is the company revenue growing?
- Does it show a strong financial ratio?
- Has the company got a working management team?
- Is its market share expanding?
- Be careful to see if the company is overvalued
Marijuana seems to be on everyones lips these days and popularity can make you want to join the party. But investing immediately could put you into serious trouble, so take your time and do your research. Remember it’s only cheap investment if you can afford to lose it!
Featured Image: Deposit Photos/AntonMatyukha